Budget Info Actions vs. Net Change Limit: Where the Cardano Constitution Draws the Line

Governance General Governance Conversation
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Today I want to explore whether the Constitutional Committee (CC) members can deem a Budget Info Action (BIA) constitutional even if the requested amount exceeds the applicable Net Change Limit (NCL) approved by the DReps.

To summarise, the hypothesis we want to validate is the following: “Budget Info Actions can only be considered constitutional as long as a Net Change Limit is in place and the total requested amount of all approved BIAs does not exceed the applicable NCL.”

Before we test the hypothesis, let us examine why an NCL is required. According to the Cardano Constitution (Article 4 (3)), a NCL must be in effect to make the following clause enforceable:

Withdrawals from the Cardano Blockchain treasury that would cause the Cardano Blockchain treasury balance to violate the applicable net change limit shall not be permitted.

One could argue that the CC cannot determine whether a treasury withdrawal violates an NCL if no NCL exists for comparison. Consequently, in addition to Article 4 (3) we must locate any provision that explicitly mandates an NCL. The term Net Change Limit appears only three times in the Constitution—once in Article 4 (3) and twice in guardrails TREASURY‑01a and TREASURY‑02a.

TREASURY‑01a (x) A net change limit for the Cardano treasury’s balance per period of time must be agreed by the DReps via an on‑chain governance action with a threshold of greater than 50 % of the active voting stake.

TREASURY‑02a (x) Withdrawals from the Cardano Blockchain treasury made pursuant to an approved Cardano Blockchain ecosystem budget must not exceed the net change limit for the Cardano treasury’s balance per period of time.

These guardrails supply the constitutional requirement for an NCL. TREASURY‑02a, while focusing on treasury‑withdrawal prerequisites, also states that no withdrawal may exceed the NCL, and TREASURY‑01a specifies both the need for an NCL and the approval threshold (> 50 % of the active voting stake) for its ratification by the DReps.

We have therefore established that an NCL must exist for any treasury withdrawal to be constitutional and that, once other constitutional requirements are met, the sum of all withdrawals during an NCL period cannot exceed the approved limit.

The remaining questions are:

  1. Do Budget Info Actions require an NCL to be in place to be constitutional?

  2. Can Budget Info Actions whose total requested amount exceeds the applicable NCL be constitutional?

Article 4 (The Cardano Blockchain Ecosystem Budget) provides the answers. Section 1 allows any ada holder to propose a budget provided it supports ongoing operation, maintenance, future development, or the governance processes defined by the Constitution. Approval must occur via an Info action supported by > 50 % of the active voting stake of the DReps (TREASURY‑04a).

Section 2 addresses the use of smart contracts and other on‑chain tools to manage budgets, requiring that each budget define its oversight process and name at least one administrator responsible for fund use.

Section 3 reiterates that treasury withdrawals must not violate the active NCL and must be tied to an approved BIA; otherwise, they are unconstitutional.

Section 4 mandates independent audits and adequate arrangements for oversight and dispute‑resolution reserves.

Section 5 requires that ada held by a budget administrator reside in publicly disclosed addresses that must not be delegated to stake pools and must be delegated to the auto‑abstain voting option.

The only other direct reference to a Cardano Blockchain Ecosystem Budget appears in Article 7 (4), which obliges the CC to review each BIA for constitutionality; Section 5 bars BIA approval while governance is in a state of no confidence (i.e., when the CC does not exist); and section 8 mentions budgets to compensate CC members. No additional occurrences of the term are found elsewhere.

Revisiting the questions

1. Do Budget Info Actions require an NCL?
Nothing in the Constitution conditions BIA approval on an existing NCL. TREASURY‑01a mandates the NCL for withdrawals, not for budget approval. A BIA can thus be constitutional even if no NCL is currently in force.

2. Can Budget Info Actions exceed the NCL?
The Constitution explicitly limits withdrawals (TREASURY‑02a) but imposes no numerical cap on the value of approved BIAs. Because the text distinguishes between an Info action for a budget and one for a future withdrawal (Article 7 (4) lists them separately), a BIA whose total requested amount exceeds the active NCL can still be constitutional, provided all other requirements are met.

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You seem to be correct. Although this is counter-intuitive.

It means that even though something is included in an approved budget, it might still not be financed because the withdrawal to actually pay out the ADA would still be unconstitutional if the NCL has been hit in the meantime. :woman_shrugging:

Obviously, nobody really thought this through when first designing CIP-1694 and even less when adding all this ad-hoc bullshit – budgets, net change limits, … – amateur hour galore.

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Yeah, it seems like this wasn’t thoroughly thought out.

On the other hand, this kind of “flaw” might actually speed up governance - and we need that right now. It’s mid-May, and we’re still debating this year’s funding! If we can start submitting Budget Info Actions without waiting for the NCL Info Action to conclude (especially given how many NCL proposals are already in play), it could help us move faster.

Thanks, @Nicolas, for bringing this to our attention!

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I don’t think it is about not thinking it through. The constitution opens up for processes around budgets (It introduces the need for NCL before withdrawal, it emphasize the need for the community to perodically propose budgets etc) and if the constitution where to detail the process at lenght it would be a very long constitution and do it really belong in a constitution? (Name any other constitution you know of that has in its laws the full detailed process of a budget?).

There are a lot of counterarguments such as how a constitution is usually a less fast moving law in terms of how often it changes and budges might require quicker changes (lets say we hardcoded a budget once a year but an emergency made it so we needed it earlier etc). A key point to remember is that the Cardano constitution also has to have some flexability in how the community makes budget processes. Thus it has to strike some balance between fixating things (lets say a budget within date x for period y) vs more open ended (any may at any time, expected to periodically (..) etc).

To OP. I agree with your analysis and it makes the budget process more flexible. I certainly hope the DReps / MBOs and individuals will find it wise to develop a current budget process that removes some of the uncertainty such as first voting in a budget then risking it not being able to be withdrawn if the NCL is too low by voting on both and making sure that we are competitive for vendors applying to the treasury for important work being done for our chain. Heck it might become bylaw or official process adopted by MBOs or DReps and that can be updated through a members meeting or by a DRep vote.

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I should add I have nothing against additions to the constitution either if that is what the community wants. I think if we fail to have DReps who manages to establish a budget process we might be forced to loose some of the flexibility the constitution currently gives on this area and make it stricter so that we ensure the other properties we want such as making a stable budget process that one can plan for more secured at a constitutional level. Currently it is very much up to the community and I would highlight the MBOs and the DReps as key players in establishing this process.

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The argument was not that the constitution should have had more detail.

As far as I’m concerned that we have a “constitution” and a “constitutional committee” at all was the first huge bullshit that was introduced. LARPing a nation state while this is only the management of a semi-relevant cryptocurrency is just utterly ridiculous.

That then some morons come along and take as a given that we even need a “budget” and they are the ones who should invent the horribly broken process for arriving at one was the next super bullshit event in the history of this clusterfuck.

This could have just been: “Projects ask for funding. ADA holders vote on treasury withdrawal. Be done.” All the detours are just bureaucracy for clowns to feel important.

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Why I made a comment on why it might be the case it was thought of.

You do you. I think it has value to have a constitution that has a very structured process and that ensures stability in our values and tentes. Some might even argue that has potentially huge economic impact given that it could encurage stability and a level playing field as to encourage more businesses to participate on Cardano given they know the rules will be the same for them.

And if the project fails to deliver? And if the project needs renegotation? And if the project needs to change vendors? Also how can the community plan and coordinate if it is individual projects one by one by one? Do you think its effective use of resources if we add say 30 individual more wallets doing various things each or maybe a budget to cover development of an open standard (as an example). Again you do you. Albeit the current budget process is quite far from what it could be I hope it will get there. Again really up to the DReps and the MBOs and anyone else who want to develop the processes. The framework is there.

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This is a great deep dive into the role of the Net Change Limit (NCL) in relation to Budget Info Actions (BIAs). Based on the Constitution and associated guardrails, the NCL clearly restricts treasury withdrawals, not budget approvals. So, a BIA can be constitutional even without an active NCL, since approval is based on Info action voting, not treasury disbursement. Similarly, a BIA that requests funds exceeding the NCL is not inherently unconstitutional — it simply can’t be executed in full until sufficient NCL capacity is in place. The distinction between budget planning and execution is key. This interpretation supports flexibility in budget design while preserving fiscal safeguards through the NCL.

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Thanks for articulating this Nico.

Maybe the biggest takeaway here is that, if DReps do not coordinate to ensure approved budgets do not exceed the extant net change limit, their decision will be made de facto based on which withdrawals they approve first.

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Thanks Nicolas